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Q&A on Chapter VII OECD TP Guidelines and Intercompany Agreements

Intercompany Agreements

24 October 2018

One of the most rewarding things about running seminars and webinars is questions from participants, and the different perspectives which they bring.

In case you’re interested, I’ve set out below one of the questions which was raised at our webinar on Tuesday (thank you Daniel!), together with our response.

Q: Would you please provide some tips or guidance on how to draft ICA's for intra-group services which would strengthen or linguistically add to the requirements set out Chapter VII of the OECD TP Guidelines in terms of the benefits test.

A: From a drafting perspective, the main focus in respect of intra-group services (referred to in Chapter VII) is usually to describe the scope of services accurately and clearly, so that the agreement correctly reflects the services actually provided and from which the recipients benefit. In a cost plus arrangement, as discussed on the webinar, costs relating to ‘shareholder activities’ would usually be excluded from the definition of those which are recharged to the recipients. As also discussed on the webinar, drafting to reflect appropriate allocation keys would also be included where applicable. Where a profit split pricing model is used, generally for higher value services, it is important that the drafting of the pricing clause, including allocation of risk associated with the services being rendered, accurately reflects the TP pricing model and functional analysis set out in the TP documentation. Where there is misalignment, the group is exposed to the risk that the terms of the ICA do not align with the TP model and, therefore, undermine the group’s TP policies in the face of a challenge.

Company law considerations of corporate governance, corporate benefit and directors’ duties will generally also apply, alongside the TP considerations including the application of the arm’s length principle and benefits test. In our view, the robustness of the arrangements as a whole are therefore strengthened by the use of appropriately clear and concise agreements which the boards / officers of participating entities can review and give informed consent to, as opposed to long and overly complicated agreements. Many of our clients subscribe for our toolkit of intercompany agreements or ask us to tailor templates for their group, so as to ensure compliance with these principles and to reduce the risk of inconsistency between the terms of their ICAs and the group’s TP policies and its business operations in practice.


Our next webinar will be on 15 November 2018 at 1pm UK time, and will focus on Intangibles and intellectual property, and how to manage Intercompany Agreements for TP compliance. We’ll use a case study to talk through key issues such as:

  • the relationship between ‘intangibles’ and ‘intellectual property’
  • how to document profit split arrangements
  • drafting considerations relating to intellectual property licences and royalty fees

If you would like to reserve a place, you can register here.

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Article by
Paul Sutton
LCN Legal Co-Founder

Free Guide: Effective Intercompany Agreements for TP Compliance